VALUATION OF PERQUISITES
A. NON MONETARY PERQUISITES :
Non-monetary benefits are those that are not provided by way of monetary
payments to the employees.
a) Residential Accommodation provided by Employer:
i) Rent free unfurnished Accommodation:- Following are added to salary as
perquisites:
Population of city
as per 2001census
Exceeding 25 lakh
Exceeding 10 lakh
but not 25 lakh
Any other
Accommodation owned
by the employer
15% of salary in respect
of period during which
the accommodation is
occupied by the
employee
10% of salary in respect
of period during which
the accommodation is
occupied by the
employee
7.5% of salary in respect
of period during which
the accommodation is
occupied by the
employee
Accommodation is taken
on lease by the employer
Amount of lease rent paid
or payable or 15% of
salary, whichever is lower
Amount of lease rent paid
or payable or 15% of
salary, whichever is lower
Amount of lease rent paid
or payable or 15% of
salary, whichever is lower
Value of perquisite as derived above shall be reduced by the rent, if any
actually paid by the employee.
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a.
b.
c.
d.
e.
f.
g.
Meaning of ‘Salary ‘for the purpose of calculation of perquisite in respect
of Residential Accommodation :
Basic Salary ;
Dearness Allowance, if terms of employment so provide ;
Bonus ;
Commission ;
Fees ;
All other taxable allowances (excluding the portion not taxable ) ; and
Any monetary payment which is chargeable to tax (by whatever name
called)
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Salary should be calculated on ‘accrual’ basis. Advance salary shall not
be taken into consideration for this purpose.
Salary from all employers shall be taken into consideration in respect of
the period during which an accommodation is provided.
Where on account of the transfer of an employee from one place to
another, he is provided with accommodation at the new place of posting
while retaining the accommodation at the other place, the value of
perquisite shall be determined with reference to only one such
accommodation which has the lower value for a period not exceeding 90
days and thereafter the value of perquisite shall be charged for both such
accommodation.
ii) Rent free furnished Accommodation :
Step 1 : Find out the value of the perquisite on the assumption that the
accommodation is unfurnished (as per working in ‘i’ above)
Step 2 : To the value so arrived at, add :
i. 10% p.a. of the original cost of furniture, if furniture is owned by
the employer.
ii. Actual hire charges paid or payable, if furniture is hired by the
employer.
iii) Furnished Accommodation in a Hotel :
The value of perquisite shall be determined on the basis of lower of the
following two:
1. 24% of salary paid or payable in respect of period during which the
accommodation is provided.
2. Actual charges paid or payable by the employer to such hotel.
However, nothing shall be taxable if following two conditions are satisfied :
1. The hotel accommodation is provided for total period not exceeding in
aggregate 15 days in a previous year.
2. Such accommodation is provided on an employee’s transfer from one
place to another place.
NOTE: Perquisite in respect of Residential accommodation is not taxable if it is
provided in a remote area.
b) Water charges & Electricity charges :
Value of perquisite shall be determined at the amount paid or payable by the
employer as reduced by the amount recovered if any, from the employee.
It is taxable in the hands of all employees (whether specified or not) provided that
the Water supply or electric connection is in the name of the employee and
expenses are reimbursed by the employer.
If, however, the Water supply or electric connection is in the name of the
employer and the expenses are borne by the employer, perquisite is taxable only
in the hands of specified employees.
Meaning of ‘Specified Employee’ :
1. Director Employee.
2. An employee having substantial interest (Beneficial owner of equity shares
carrying 20% or more voting power).
3. An employee whose income chargeable under the head ‘Salaries’ (exclusive of
the value of all benefits or amenities not provided by way of monetary
payments) exceeds Rs.50,000/-.
c) Interest free loan/Loan at concessional rate of interest :
If a loan is given to an employee (or any member of his household), interest
thereon is a perquisite chargeable to tax.
It is taxable in hands of all employees (whether specified or not) on the following
basis :
1) Find out the ‘maximum outstanding monthly balance’ (i.e. the aggregate
outstanding balance of each loan as on the last day of each month)
2) Calculate interest on loans charged at the rate applicable
to the similar loans as prescribed by State Bank of India
as on the 1st day of April of the relevant previous year
(e.g. 1st April 09 for A Y 2010-11) on the amount derived
in step 1
XXX
3) Less: Interest on loans charged by Employer, if any
XXX
4)
Balance amount is the taxable non- monetary
perquisite on concessional loans
XXX
Note: Exemption is given to the above rule in case of following situations :
1. When the amount of the original loan in the aggregate does not exceed Rs.
20,000/-.
2. If a loan is taken for medical treatment in respect of diseases specified in
Rule 3A.(the exemption is not available to the amount of the loan that
has been reimbursed to the employee under any medical insurance
scheme.)
.
d) Use of movable assets :
If a movable asset (except computer / laptops or car) is given for use to an
employee (or any member of his household), it is a perquisite chargeable to tax.
It is taxable in hands of all employees (whether specified or not) on the following
basis :
1. 10% p.a. of actual cost if asset is owned by employer
or rent paid or payable if taken on hire by the employer XXX
2.
Less: Amount recovered from the employee
XXX
3.
Balance amount is the taxable non- monetary
perquisite on use of movable assets
XXX
e) Transfer of movable assets :
If a movable asset is transferred directly or indirectly to an employee (or any
member of his household), it is a perquisite chargeable to tax. It is taxable on the
following basis :
1. Actual cost of the asset to the employer
XXX
2. Less: Cost of normal wear and tear which shall be
determined as under:
Sl.No. Asset type
Rate
1.
Motor Car
20%
2.
Computer and 50%
Electronic gadget
Other Assets
10%
3.
f)
Method of
Depreciation
Written Down
Value Method
Written Down
Value Method
Straight Line
Method
3. Less: Amount recovered from the employee
XXX
4. Balance amount is the taxable non- monetary
perquisite on transfer of movable assets
XXX
Membership fees and Annual Fees Credit Card :
Any membership fees and annual fees incurred by the employee (or any
member of his household), which is charged to credit card (including any add-oncard) is taxable on the following basis :
g)
1. Amount of expenditure incurred by the employer
XXX
2. Less : Expenditure on use for official purposes
XXX
3. Less : Amount, if any, recovered from the employee
XXX
4. Balance amount is the taxable non- monetary perquisite
XXX
Club Expenditure :
Any annual or periodical fees, on Club facility used by the employee (or any
member of his household), which is paid or reimbursed by the employer is taxable
on the following basis :
1. Amount of expenditure incurred by the employer
XXX
2. Less : Expenditure on use for official purposes
XXX
3. Less : Amount, if any, recovered from the employee
XXX
4. Balance amount is the taxable non- monetary perquisite
XXX
Note:
1) Health club, sport facilities etc. provided uniformly to all classes of employees
by the employer at the employer’s premises and expenditure incurred on them
are exempt.
2) The initial one-time deposits or fees for corporate or institutional membership,
where benefit does not remain with a particular employee after cessation of
employment are exempt. Initial fees / deposits, in such case, is not included.
h) Value of Subsidized / Free Lunch provided by employer to an employee:
Value of taxable perquisite is calculated as under:
1.
Expenditure incurred by the employer on the value
of food / non-alcoholic including paid vouchers
(Sudexo) which are not transferable and usable
only at eating joints
XXX
2.
Less: Fixed value of a sum of Rs. 50/- per meal
XXX
3.
Less: Amount recovered from the employee
XXX
4.
Balance amount is the taxable non- monetary
perquisites on value of food provided to the employees
XXX
Note : Exemption is given in following situations :
1. Tea / snacks provided in working hours.
2. Food & non alcoholic beverages provided in working hours in remote area
or in an offshore installation.
i)
Holiday Facility maintained by employer
If a Holiday facility is maintained by the employer and is available uniformly to all
employees, the value of such benefit would be exempted.
B. MONETARY PERQUISITES :
Monetary benefits are those that are provided by way of monetary payments to
the employees.
a)
Vehicle maintenance Reimbursement :
a) Use of any vehicle provided by the employer to an employee for journey by
him from his residence to office or from office to his residence shall not be
chargeable to tax.
b) Where the car is owned by the employee or employer and maintenance &
running expenses including driver salary, are met by the employer and if the car
is used wholly for official purposes, no value shall be taken as perquisite
provided :
i.
ii.
The employer has maintained complete details of the journey undertaken for
official purposes;
The employer gives a certificate that the expenditure was incurred wholly for
official duties.
Section 10(14) includes only those allowances which are not in the nature of
perquisite within the meaning clause (2) of section17. Vehicle maintenance
reimbursement falls within the purview of sec. 17(2). Hence, this exemption is not
available to the employees claiming vehicle reimbursement for
official
purposes. Conveyance allowance to the extent of Rs 800/- p.m. or Rs1600 p.m (for
a blind person) is allowable to all employees other than those claiming Vehicle
reimbursement to meet the expenditure for the purpose of commuting between
place of residence and place of office.
b)
House Cleaning reimbursement:
The value of benefit to the employee (or any member of the household),
shall be the actual cost to the employer as reduced by the amount if any recovered
from the employee.
If a domestic servant is engaged by the employee, the perquisite is taxable in the
hands of all employees (Whether specified or not).
If a domestic servant is engaged by the employer, the perquisite is taxable in the
hands of only specified employees.
If Domestic Servant allowance is given to the employee, it is chargeable to tax as
perquisite even if the allowance is used for engaging a domestic servant.
c)
Book Grant reimbursement :
If actual bills are provided it forms nature of reimbursement which is not taxable if it
can be proved that acquisition of books is necessary for the purpose of the business
d)
Medical Reimbursement :
Medical reimbursements shall be treated as monetary perquisite since it falls in
the purview of sec.17(2) and any amount paid by the employer to the employee in
excess of Rs15000/- p.a. is taxable as perquisite. Following is the extract of the
proviso (v) to Section 17 (2)(vi).
As per the proviso (v) to sec.17(2)(vi), a sum upto Rs.15,000/- per annum paid by
the employer in respect of any expenditure actually incurred by the employee on
his medical treatment or treatment of any member of his family is exempt.
‘Family’ for this purpose, means :a. the spouse & children of the individual; and
b. the parents, brothers and sisters of the individual or any of them wholly or
mainly dependent on the individual.
e)
Staff Furnishing Scheme :
It is a business expenditure if it can be proved that incurring such expense is necessary
for the purpose of the business
f)
Brief Case reimbursement :
It is a business expenditure if it can be proved that incurring such expense is necessary
for the purpose of the business
g)
Entertainment allowance :
Any entertainment allowances paid to non-government employees are taxable.
h) Gifts / Awards :
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i)
If made in cash or convertible into money (like gift cheques), they are taxable as
perquisites
If made in kind up to Rs. 5,000 in aggregate per annum would be exempt, beyond
which it would be taxable
Transfer Grant Allowance :
In this connection it is to be noted that as per sec.10(14) read with rule 2BB any
allowance granted to meet the cost of travel on tour or on transfer includes any sum
paid in connection with transfer, packing and transportation of personal effects on
such transfer shall be exempt. Also any allowance, whether, granted for the period
of journey in connection with transfer, to meet the ordinary daily charges incurred
by an employee on account of absence from his normal place of duty shall be
exempt.
j) Holiday Expenditure reimbursement :
It is not taxable. It is an allowable expenditure u/s 37 provided the holiday (picnic) is
organized by the employer.
However, any Expenditure paid or reimbursed by the employer for any holiday (one
day picnic) availed of by the employee or any member of his household is to be
considered as taxable perquisite.
k) Leave Fare Concession (LFC):
The following are the important points, to be taken into consideration, for claiming
exemption u/s 10 (5) of the Income Tax Act, 1961 read with Rule 2B of the Income
Tax Rules, 1962:
1. Definition - Value of LFC received by or due to an individual from his present or
previous employer, as the case may be, for himself and his family in connection with
his proceeding on leave to any place in India.
The exemption shall be available either if the employee is traveling alone or
accompanying his family in connection with his proceeding on leave to any place in
India. But, exemption shall not be available if the family members are traveling
separately without the employee who is not on leave.
2. Number of Trips – The exemption shall be available in respect of 2 journeys
performed in the block of 4 calendar years. E.g: 1986-1989, 1990-1993… 2006-2009.
Some important points to be considered are as under:
1. It is uniform for all employees
2. Where an employee does not avail LFC, either one or on both the occasions,
during the block of 4 calendar years, the value of LFC first availed during
the first calendar year of the immediately succeeding block shall be eligible
for exemption in lieu of exemption not availed during the preceding block
Only one trip can be carried forward to be availed in the immediately
succeeding block.
3. Quantum of Exemption – The basic rule is that quantum of exemption will be limited
to the actual expense incurred on the journey. They are explained as under:
•
•
On declaration basis - Without performing any journey and incurring
expenses thereon, no exemption can be claimed.
On Non-declaration basis – The quantum of exemption will be subject to the
following maximum limits for journeys performed on or after 01.10.1997:
Journey Performed by
• T
1. Air
h
e connected by
2. Places
rail and journey
e by any mode
performed
x by air
other than
e of origin and
3. Place
m
destination
or part
thereofp not connected
by rail t
i
o
n
•
Exemption Limit
Air Economy fare of the national carrier (Air India) by the
shortest route to the place of destination
First Class Air conditioned rail fare by the shortest route to the
place of destination
a) Where public transport system exists, first class or deluxe
class fare on such transport by the shortest route to the place of
destination.
b) Where no public transport system exists, first class A/C rail
fare, for the distance of the journey by the shortest route, as if
the journey has been performed by rail.
is limited to the actual expenses incurred on the journey which in turn is
strictly limited to expenses on air fare, rail fare and bus fare only. No other
expenses like local conveyance, sight seeing expense etc., shall qualify for
exemption.
Where the journey is performed in a circuitous route, the exemption is limited
to what is admissible by the shortest route. Likewise, where the journey is
performed in a circular form touching different places, the exemption is limited
to what is admissible for the journey from the place of origin to the farthest
point reached in India, by the shortest route.
4. Restriction on children – The exemption will not be available to more than 2
surviving children of an individual born after 01.10.1998. This restriction shall not
apply in respect of children born before 01.10.1998 and also in case of multiple births
after one child. It may be noted that section 2 (15B) of the Act defines a child as
includes a step child and an adopted child of the individual.
5.
Definition of Family – As per the provisions of Income Tax Rules, family means:
• Spouse and children of the individual.
• Parents, brothers and sisters who are wholly or mainly dependent on the individual.
6. Foreign Travel – As per the provisions of Income Tax Rules, exemption is not
allowable in case of travel abroad.
7. Obligation of the employer – As per a previously decided case law – C.E.S.C. Ltd.
Vs ITO (TDS) 2003 Tax LR 401 (Cal.), the employer has to satisfy the obligation that
leave travel (fare) concession is not taxable in view of section 10 (5), the employer is
not only required to be satisfied about the ingredients of the said clause but also to keep
and preserve evidence in support thereof.